Buy to let

[anonymous-user]

Back in 2008 quite a lot of people got seriously burnt in BTL. Check out this link,

https://www.theguardian.com/money/2008/mar/09/hous...

"The past 10 years have seen an unprecedented wave of city-centre apartment developments in a number of northern cities, with Manchester, Liverpool and Leeds the most prominent. But for some investors who piled in to buy them, often in the hope of making quick gains, their investments have already turned sour. Inflated prices, unrealistic rental expectations and rising interest rates have conspired to turn the dream of making easy money into a nightmare."

[DonkeyApple]

And they're currently getting mullered in some of the high end South London schemes. The Battersea Power station development is all a bit of a mess as part time landlords are suddenly waking up to the fact that no one with £2m+ of buying power wants to live on that side of the river.

Punters were only saved in 2008 by unpredented State intervention. Investing today in the belief that this would happen again wouldn't be smart.

[Ari]

covmutley said:

invest in funds that have historically returned 8-9%+

Do such things exist?

(In real life outside the realms of PH PBD's and their amazing offshore schemes I mean).

[anonymous-user]

Ari said:

covmutley said:

invest in funds that have historically returned 8-9%+

Do such things exist?

Yes, definitely true over the past 10 years. Do it in ISA or a pension and it's all tax free as well.

Unfortunately past performance is never a good guarantee of future returns - but that's true of BTL as well.

[untakenname]

There's a massive oversupply of flats in London and rents are already falling quite substantially, combined with S24 and Brexit/Corbyn on the horizon I'd say you've missed the boat with leveraged BTL.

[eldar]

rockin said:

Yes, definitely true over the past 10 years. Do it in ISA or a pension and it's all tax free as well.

Unfortunately past performance is never a good guarantee of future returns - but that's true of BTL as well.

Agreed. ISA and compound interest are your friends over the longer term.

[Ari]

rockin said:

Ari said:

covmutley said:

invest in funds that have historically returned 8-9%+

Do such things exist?

Yes, definitely true over the past 10 years. Do it in ISA or a pension and it's all tax free as well.

Unfortunately past performance is never a good guarantee of future returns - but that's true of BTL as well.

And there's the rub. Everything seems to be peaking at the moment - just doesn't feel a good time to wade in to such things.

[rossw46]

Thank you all for your input.

I'm not pursuing BTL, not solely based on PH advice, but have spoken to a mortgage adviser too and it is not very attractive at all.

Instead, I'm going to focus on overpaying my mortgage as much as possible, I can usually do at least £500/month over the current payment, but essentially going to focus on being rid of it in 10 years, making me 41, which would free up a good sum of cash monthly.

[DonkeyApple]

Or store it as cash. If rates are going to rise then cash suddenly becomes valuable again. If rates rise enough to bring down asset values of houses then only those with real cash will be able to take advantage and buy anything. There won't be any other way to buy things than with real cash.

[Sheepshanks]

DonkeyApple said:

Or store it as cash. If rates are going to rise then cash suddenly becomes valuable again. If rates rise enough to bring down asset values of houses then only those with real cash will be able to take advantage and buy anything. There won't be any other way to buy things than with real cash.

Yet everyone says having cash is stupid as it's eroding in value.

[DonkeyApple]

Sheepshanks said:

Yet everyone says having cash is stupid as it's eroding in value.

It's been eroding in value since 2009 when its yield was dropped to nothing. Hence the asset rally as the cash is converted into other investments and the speculative rally that has followed as people then borrowed more cash to invest into other assets.

But if rates rise then with each rise cash becomes more valuable and non cash assets less so and so people will start swapping non cash assets for cash.

And so those non cash assets will begin to fall in value and at some point that movement will be out of control and prices will fall well below fair value. And it is at that point that people want to buy them again, except only people with real cash can. People won't be able to borrow to buy them. You'll need real money.

So, if we are at the bottom of the rate curve and heading up then it is time to store cash and maybe later it will be time to sell assets to get even more cash. And eventually there will be a time when those who have cash will start buying the assets that those who never got round to selling have had seized by their lenders and dumped onto the market.

So, seeing as rates are rising in the US, the ECB is likely to get a German leader after Draghi and Germany is very keen to raise rates and the BofE is turning hawkish then it is now fair to hold the view that building cash reserves is the prudent action. If all your wealth is locked into an illiquid and devaluing asset such as your home then there isn't much you can do but be a passenger.

[WindyCommon]

DonkeyApple said:

It's been eroding in value since 2009 when its yield was dropped to nothing. Hence the asset rally as the cash is converted into other investments and the speculative rally that has followed as people then borrowed more cash to invest into other assets.

But if rates rise then with each rise cash becomes more valuable and non cash assets less so and so people will start swapping non cash assets for cash.

And so those non cash assets will begin to fall in value and at some point that movement will be out of control and prices will fall well below fair value. And it is at that point that people want to buy them again, except only people with real cash can. People won't be able to borrow to buy them. You'll need real money.

So, if we are at the bottom of the rate curve and heading up then it is time to store cash and maybe later it will be time to sell assets to get even more cash. And eventually there will be a time when those who have cash will start buying the assets that those who never got round to selling have had seized by their lenders and dumped onto the market.

So, seeing as rates are rising in the US, the ECB is likely to get a German leader after Draghi and Germany is very keen to raise rates and the BofE is turning hawkish then it is now fair to hold the view that building cash reserves is the prudent action. If all your wealth is locked into an illiquid and devaluing asset such as your home then there isn't much you can do but be a passenger.

A cogent hypothesis. How long have you held it?

[DonkeyApple]

WindyCommon said:

A cogent hypothesis. How long have you held it?

Well, I sold all my property bar home and cars in 2006 because I believed a crash was coming. I never foresaw that it would be so large as to result in zero rates and the massive asset inflation that we've seen. I ended up buying some property back in 2010. And only old cars where values have been supported by the massive asset buying trend.

But, after the recent rate rises in the US and all the work in the U.K. to force property speculators to de-leverage I'm convinced enough that the risk of rising rates is the strongest that it has been since 2009 that I've sold my main home in London and gone to cash on that front.

I want to make sure that I have cash now and if proven correct then I will sell more assets into that flow and wait for when the rate rises out run inflation and asset values are hit hardest.

Maybe rates will stall again and the asset bubble keep going but I certainly believe the risk of that not being the case sufficient to ensure I'm sitting on good cash reserves right now and for at least the next 24 months or until sentiment changes.

[drainbrain]

DonkeyApple said:

I want to make sure that I have cash now and if proven correct then I will sell more assets into that flow........

.........sufficient to ensure I'm sitting on good cash reserves right now and for at least the next 24 months.....

I am, of course, of the opposite sentiment. 'Sell' is not usually in my vocabulary unless it's an asset deliberately bought to sell, and even then the sale proceeds have to have a prospective purpose before any sale is done.

Growing cash piles absolutely do my nut in (regardless of the state or movement of the greater economy) and it just burns a hole in my pocket till I can find an 'asset' / 'earner' (usually yet another boring propertaaaay) to splurge it on.

Problem is as you get old The End is ever Nigher and the further problem is that the older you get the less 'shiny things' appeal.

So the pointlessness of self-centred materialism becomes an issue.

Thus the cash pile gets spunked on stuff that creates an even bigger cash pile that you really have no personal reason to need or even want.

Yet somehow keeping it stored earning nothing in an account does my nut in.

[Jockman]

drainbrain said:

So the pointlessness of self-centred materialism becomes an issue.

I take your point. However, what happens to these items once you are gone?

[drainbrain]

Jockman said:

I take your point. However, what happens to these items once you are gone?

Merry Widow then when she's gone, charity.

[Jon39]

rossw46 said:

Thank you all for your input.

I'm not pursuing BTL, not solely based on PH advice, but have spoken to a mortgage adviser too and it is not very attractive at all.

Instead, I'm going to focus on overpaying my mortgage as much as possible, I can usually do at least £500/month over the current payment, but essentially going to focus on being rid of it in 10 years, making me 41, which would free up a good sum of cash monthly.

You are right about BTL.
As you know, our main residence is not subject to tax, whereas a second property is.
I have had a second property for a long time, but I refuse to sell because that would now involve a considerable CGT payment.
An example of how it can all go wrong.

Your second point about debt overpayment, may not turn out to be so wise. It depends on future events, but keep in mind the following, and remember the tax free gain aspect of your main home. The feature is called gearing.

Put say 20% deposit, borrow 80%, but obtain an investment increase on the 100% figure.
The ratio of gain is on 5 times the amount that you have invested.

When property prices go down, this gearing all works in reverse, which can be a disaster, but if you think prices will rise, then the biggest return will go to those with the biggest gearing ratio.

There are of course some other considerations, such as affordability of the debt repayment, if/when interest rates rise.

[Jockman]

drainbrain said:

Jockman said:

I take your point. However, what happens to these items once you are gone?

Merry Widow then when she's gone, charity.

So not so pointless. And not so self-centred.

[DonkeyApple]

drainbrain said:

I am, of course, of the opposite sentiment. 'Sell' is not usually in my vocabulary unless it's an asset deliberately bought to sell, and even then the sale proceeds have to have a prospective purpose before any sale is done.

Growing cash piles absolutely do my nut in (regardless of the state or movement of the greater economy) and it just burns a hole in my pocket till I can find an 'asset' / 'earner' (usually yet another boring propertaaaay) to splurge it on.

Problem is as you get old The End is ever Nigher and the further problem is that the older you get the less 'shiny things' appeal.

So the pointlessness of self-centred materialism becomes an issue.

Thus the cash pile gets spunked on stuff that creates an even bigger cash pile that you really have no personal reason to need or even want.

Yet somehow keeping it stored earning nothing in an account does my nut in.

But, if you're buying up assets without leverage and have a book of them already that are showing good capital gain while all are underpinned by benefits revenue then I don't really see much of a risk there. As opposed to what I have mostly been invested in, where I think there is more risk given how that market has boomed and there is no potential for support for rents so pure market forces would prevail.

But you've given the impression that the assets you are currently buying you're paying cash for and in that regard we probably have an identical view that the current market is not smart for leverage. In property I wouldn't want anything in the U.K. on less than 50% margin and I certainly wouldn't want anything where I couldn't happily finance a 12 month void, sitting tenant or trashing.

I've never had an issue sitting on cash as it's just another asset class and it tends to be a good one to be in when other assets are falling in demand and then value.

Also, having cash when property values are falling and banks are knocking for a margin call means you can keep them off your back which is why I'm of the view that paying down a mortgage beyond a certain level is less beneficial at the moment than putting the cash to one side and deciding at a later date whether to pay down the debt. And why I don't think it's the right time to be increasing debt levels. Nothing wrong with continuin to invest in property but I don't think it's the time to be doing so with leverage.

[drainbrain]

Jockman said:

So not so pointless. And not so self-centred.

Well I've had a woolly-minded 'life insight' that the point of being materially blessed is to enable the welfare of the deprived.

This might be wrong thinking, in which case fuelling it would be pointless and just another expression of selfishness.

But I see what you mean. There's a certain point in 'altruism' and to the degree it benefits others, it's 'unselfish'.

That's our charity, by the way. According to it's boss it's doing really well too......

https://jairahfunds.com